I can’t speak for all areas of the world where our readers are from, but the economy right now in the US is a bit shaky. Over the past 6 months we’ve experienced a drop in the Chinese economy, we’ve felt the squeeze of exchange rates across the globe, a general decline in the stock market (including a big sell off of technology stocks in 2016), plus we are in an election year with no clear winner. Perhaps saying that 2016 is starting off a bit shaky is actually more of an understatement.
As a small business owner (BrightGauge has 15 employees and growing) these macro factors can impact our business in 2016, so as we began the planning for this year we wanted to make sure we stayed more cautiously optimistic in case the economy does take a turn for the worse.
We are fortunate that because we are a data company we keep an eye on our metrics across our business on a weekly (some daily) basis to make sure we are performing in line with expectations. To rely on your Profit & Loss statement at the end of the month is too late in the world we live in today. But another great process we went through this year was developing our guardrails for running the company.
Guardrails are the rules or requirements we have decided as a management team to put in place and ensure we operate in a zone we are comfortable with. These guardrails were set at the beginning of the year and are not to be broken or adjusted without a major shift in company direction. Let’s talk about the 3 types of guardrails we have developed for BrightGauge... keep in mind that for the purposes of confidentiality we have changed the numbers but not the concepts:
Money
The most obvious guardrail that any business owner should have in place is Minimum Profit. Let’s assume that in order to run your business comfortably and save some money for a rainy day you need to operate the business with a profit of $100,000 per year. Just by having that number written down and committed to making it a guardrail means that any investment decision you have should consider the impact to your potential profit for the year.
Time
Although most people place a higher value on money versus time, I would argue that time is much more valuable. Brian and I have a guardrail on how many hours we are willing to put in each week to live a balanced life. If we find ourselves or anyone on our team bumping up against that guardrail on a regular basis we know we need to reevaluate the workload and/or find another solution to help get the work done.
Unit Economics
Guardrails can also apply at a micro level to any investment you make or any customer or contract. For example, with any marketing investment we make we have a defined ROI of 5x before we consider it successful. Therefore before we consider making an investment in a new marketing channel or sponsoring a conference we review what we expect the return will be, to ensure we can achieve a 5x return. The same can be applied for any company using Gross Margin minimums, Product Margin minimums, even Sales Quotas. All of these are guardrails that help ensure you are still within the boundaries that you set at a more micro level (deal specific, person specific, line of business specific).
While these are 3 examples of some broad-category guardrails we use at BrightGauge, it’s important for you to take the time and decide which guardrails are the most important for your business. Once you have your guardrails in place, you have to monitor them on a daily, weekly, monthly basis (feel free to use BrightGauge) to make sure that you stay in line. Remember, it’s much easier to make small adjustments as you’re tracking than it is to make a more drastic change when you review your monthly P&L.
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